Boston, MA -- (SBWIRE) -- 11/13/2012 -- Slovakia continues to outpace its larger, but beleaguered counterparts in the EU in terms of economic expansion, as Europe's largest carmaker per capita continues to drive growth. Despite this ongoing feat, however, Slovakia remains the eurozone's second-poorest state and faces the same budget cuts, tax increases and declines in economic confidence being faced across the bloc. BMI expects to see vehicle sales to grow by 4.07% to 81,467 units in 2012 as the market continues to struggle against the above factors. BMI also sees production growth coming in at 2.75% to 606,564 units for the year.

Strong performance in Slovakia's exports has prompted BMI to modestly revise up its real GDP forecast upwards to 2.0% for 2012, from a previous forecast of 1.5% y-o-y. However, Q112 readings support our view that economic activity is underpinned almost exclusively by exports, and will remain vulnerable to further slowdown in the eurozone as a result.

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Drilling down into the breakdown of expenditure confirms our view that net exports now remains the sole remaining driver of growth for Slovakia, with household and government consumption tepid, and contracting gross fixed capital formation. Although markets in the EU and Russia have traditionally driven Slovakia's production and sales, potential demand from Asia appears increasingly important as recovery across Europe remains tepid and the outlook weak. Slovakia's medium-term economic dexterity will likely depend on its ability to increase its export orientation towards China and Russia, while reducing its exposure to Germany and the wider eurozone.

In any case, Slovakia's auto majors continue to demonstrate long-term commitment to production capacity in the country, both through recurring investment and output ramp ups. Volkswagen plans to increase output at its Bratislava plant to a record 400,000 vehicles in 2012, after it manufactured 210,441 vehicles in 2011 amid strong demand for its SUV models in Germany and emerging markets. Meanwhile, Kia expects record production to top 285,000 cars in 2012. Kia Slovakia reported a 10% year-on-year rise in production to 149,000 cars in H112, setting a new record for the company and bucking a trend of declining output and sales at some western European manufacturers.

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